9911796707
TMI Blog2020 (9) TMI 917X X X X Extracts X X X X X X X X Extracts X X X X ..... this year, in our considered view, the loss of precious metal during this year is abnormal. The abnormal utilisation of precious metal, however big, it is utilised as machinery consumables only, it does not or will not increase the life of the machinery. Abnormal loss incurred by the assessee can be treated as revenue expenditure to be allowable during this year or the abnormal loss can be amortised in 2 to 3 years. In our considered view no doubt the losses considerably high, we direct assessing officer to amortise the abnormal loss in 2 years that is 50% during this assessment year and balance in the next assessment year. With regard to observation of the assessing officer that assessee has purchased from the vendor and the documentation does not show that it is refurbished the machineries. We observe from the certificate issued by technical engineers from the company that assessee has purchased these precious metals and the internal technical department has carried out the respective work of re-fabrication of damaged feeders/nozzles. Therefore, we do not notice anything wrong in purchasing of the precious metals and carrying on repair work of the machineries internally by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crutiny and notice under section 143 (2) and 142 (1) were issued and served on the assessee. In response, assessee filed the relevant information as called for. During assessment proceedings, AO noted that assessee has claimed ₹ 1,92,30,918/- in its profit and loss account on loss of precious metal. When the assessee was asked to give the details for such claim and assessing officer observed that assessee has never claimed the expenditure to such extent in the earlier assessment year and the assessee has claimed the maximum amount of ₹ 14,44,477/- in the assessment year 2007 - 08. In the detail, assessee submitted that assessee has paid to its parent company M/s Schott AG for the loss in the precious metal leased from them amounting to ₹ 46,57,540/- and an amount of ₹ 1,45,73,378/- paid for replenishing the loss in precious metal on account of wear and tear. 4. Further assessee vide letter dated 25.02.2015, explained the reasons of climbing the loss that the assessee is engaged in the business of manufacturing of specialized glass tubes used for ampoules, vials manufacturing. In the manufacturing process, the assessee uses following specialized machinery/eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the actual loss of precious metal on account of corrosion shall be reimbursed by the assessee to M/s Schott A.G. The assessee has submitted copies of documents received from M/s. Schott AG dated 2007.2010, 03.02,2011 and 23.09.2010 wherein M/s.Schott AG has given the details of the loss of precious metals incurred due to erosion and corrosion being the amount of ₹ 27,77,873/-, ₹ 8,72,6561- and ₹ 1007,011/- respectively. The total amount of loss in precious metals worked out by M/s Schott A.G. amounted to ₹ 46,57540/-. The assessee has claimed that the amount of ₹ 1,45,75,945/- represents the charges paid for refining and melting of precious metals and the same were replenished on account of loss of precious metals. The assessee had submitted Invoices raised by M/s. Ravindra Heareus Pvt. Ltd. invoice no.1513/10-11 dated 16.03.2011 amounting to ₹ 1,00,21,801/-, invoice No.0998/10-11 dated 10.12.2010 amounting to ₹ 24,67,935/-and invoive No.0874/10-11 dated 10.11.2010 amounting to ₹ 20,86,209 pertaining to actual purchase of precious metals sheets viz. Rhodium and Platinum. The total amount of purchase of sheets of precious meta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 46,47,540/-. Thus, the same is not allowable u/s.37 of the Act. A sum of ₹ 145,75,945/- is added to the total income of the assesse. Penalty proceedings u/s 271(1)(c) of the I.T. Act is initiated for furnishing of inaccurate particulars of income. 6.3.2 Without prejudice to the above, the claim of the assessee that the expenses are incurred i.e. loss on precious metals is of the nature of repairs to plant and machinery due to the following reasons: a. In the past four years the amount of loss of precious metal was never claimed in excess of ₹ 15,00,000/-. During the year the assessee has claimed the loss of precious metal on account of replenishment of metals corroded to the extent of ₹ 1 .92 crores. b. As discussed above, the assessee has purchased precious metals to the extent of ₹ 1,45,75,945/-. The assessee company and M/s. Schott AG have entered into an agreement of lease of precious metals whereby M/s. Schott AG will provide precious metals to the assessee company on lease and in case of any loss on precious metal the assessee company will repay the loss. In this case, the assessee has purchased precious metal sheets amounting to ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for undertaking repairs of damaged sections/portions of road within factory premises and that the same included repairs of damaged sections of existing roads as well as preventive maintenance of roads and also involved supply of gravel/undertaking of gravelling activities on the road. Sample copies of the invoices for the payments made to Ws Shivanjali Projects have been submitted vide letter dated 29.1.2015. In respect of payment made to M/s. Ramanlal Ranchodlal Shah the assessee has submitted that "the company has made payment to MIs. Ramanla! Ranchodlal Shah for the undertaking following repairs: a. Payment for repairs of damaged sections/portions of roads within the factory premises amounting to ₹ 15,68,762. This involved the following activities like RCC work, Reinforcement for RCC, PCC work, Framework, Contraction joint Expenditure incurred in respect of repairs of damaged roads within the factory premises amounting to ₹ 15,68,762 has been claimed as revenue expenditure. b. Payment for PCC surface of warehouse -₹ 6,17,888/- This expenditure in respect of PCC surface warehouse amounting to ₹ 5,27,888 has been capitalized and added to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area by soil, placing a layer of Plain Cement Concrete, constructing with brick work upto plinth level, giving contract for supplying and fixing the paver blocks and laying the top layer with RCC. Thus the entire work of laying of the road was carried out right from dismantling of existing road, excavation of the foundation up to depth of 1.5 mts and till fixing the to top RCC surface alongwith brickwork upto the plinth level and fixing the paver blocks in sides etc was carried out. This nature of work does not constitute petty repairs ie. Repairing of patches of road as claimed by the assessee. In respect of work of PCC surface at Warehouse amounting to ₹ 6,17,888/-, out of which the assessee had capitalized expenditure for PCC surface amounting to ₹ 5,27888/- and the same was added to the cost of warehouse in the balance sheet and this was explained vide assessee's letter dated 19.22015, however in respect of similar nature of expenses right from the dismantling of existing road to the laying of top surface with Reinforced Cement Concrete (RCC) the assesee had claimed it as repairs expenses. Thus the laying of new road and together with construction/finishing surr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ialised tools used to manufacture the glass products of the Assessee. The assessee has incurred these expenses only to maintain and to bring back the original state of the specialised equipment and by incurring these costs the assessee does not bring a new asset I equipment into existence. Observation - The expense incurred in the year under consideration is abnormally high as compared to previous years Rebuttal - The increase in the loss of precious metals was on account of the following: a) The assessee has four furnaces (Tank 61 and 62 which manufactures NCG & Tank 63 and 64 which manufactures fiolax glass tubes). During the financial year 2008-09, there is an increase in capacity of Tank 61 and 62 by 25% and an additional furnace (Tank 64) was set up for manufacture of fiolax glass tubes, which involves more corrosion and wear and tear of the equipment such as feeder, nozzle, electrode, etc as against equipment used in the manufacture of neutral glass tubes. In view of the increase in capacity and setting up of new furnace the consumption of the precious metals by the assesse has increased substantially in the year under consideration and subsequent years. The details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Observation - The aforesaid loss did not arise at all since the payments made to Ravindra Heraeus was merely towards purchase of precious metals. The payment made to Ravindra-Heraeus Pvt Ltd for replenishment of precious metal is not allowable under the agreement entered into by the assessee with Schott AG. Rebuttal - As mentioned above, the assessee had made payments to Ravindra Heraeus for acquiring precious metals for replenishing the loss in the precious metals used in the production process. The precious metals acquired by the assessee from Ravindra Heraeus were used in the refabrication into the refined feeders/nozzles in the Assessee's own workshop. This is evidenced by the engineer's certificate enclosed as additional evidence, certifying the use of the precious metals. Thus the aforesaid payment made towards acquisition of the precious metal, is a genuine business transaction and is to be allowed under section 37 of the Act. Further the replenishment of precious metals is mandated even under the terms of the lease contract with Schott AG. In this regards, the assessee places reliance on the decision of the Supreme Court in the case of CIT v. Kalyanji Mavji ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the submissions of the assessee, learned DRP rejected the contention of the assessee and sustained the addition made by AO by observing that AO has given valid reasoning for disallowance. Aggrieved with the above order the assessee is in appeal before us raising following grounds of appeal:- Ground 1: 1.1 On the facts and in the circumstances of the case and in law, the Order dated 25 January 2016 (impugned Order) passed by Income-tax Officer -11(2)(1) (Assessing Officer) under section 143(3) read with section 144C(13) of the Income-tax Act,1961 (the Act) pursuant to the directions of the Dispute Resolution Panel ('DRP') dated 22 December, 2015 is bad in law since the Hon'ble DRP merely confirmed the adjustments proposed by the Assesssing Officer without providing justification/ reasoning for rejecting the objections of the appellant. The Appellant prays that the impugned Order be quashed since it is bad in law. Ground 2: 2.1 On the facts and circumstances of the case and in law, the Hon'ble DRP/ Assessing Officer erred in disallowing an amount of ₹ 1,45,75,945 in respect of loss incurred on precious metal on the ground that the same is capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese precious metals and assessee has used in the machineries for production purpose. He brought to our notice page 168 of the paper book which is certificate issued by Assistant Manager from production and platinum workshop who has confirmed that these materials were consumed in the re-fabrication of damaged feeders/nozzles during this year. Further he brought to our notice page 161 to 164 of the paper book, which is invoice copies of the vendors who supplied these precious metals. He brought to our notice findings of AO in which he observed that it is one-time expenditure and he himself compared the expenditure of earlier assessment years. He objected to the observation of DRP for sustaining the additions made by assessing officer without appreciating the technical submissions of the assessee considering the peculiar process in the manufacturing of glass tubes. Further he submitted that the ground No. 2.2 is an alternate plea of the assessee in case bench considers the above said repair expenditure as capital in nature, the assessee should be granted depreciation on the loss incurred on precious metals. 13. With regard to ground No. 3, he submitted that assessee has carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction process. We notice that AO has rejected the purchase of metals with the observation that the vendors has raised the bill as sale of precious metals rather than raising bill for refurbishment of the nozzles or feeder. Further he observed that the loss of precious metals were quantified by the assessee and as per agreement, it was reimbursed to its parent company. There is no other loss incurred by the assessee during this year. Therefore, assessee cannot claim any loss during this year. 17. We notice that the assessee has submitted that it has four furnaces and there is increase in the capacity of furnaces during this year. Accordingly, the consumption of precious metal has increased substantially. Assessee has filed yearwise annual production for financial year 2007 - 08 to financial year 2013-14. Further it submitted that the assessee has incurred loss on precious metal during this year is at ₹ 1.92 crores and in the subsequent assessment years assessee has incurred ₹ 97,08,018/- in assessment year 2012 - 13, ₹ 79,71,272/- in assessment year 2013 - 14 and ₹ 1,18,05,588/- in assessment year 2014-15. Further it is submitted that there were abnormal cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has purchased these precious metals and the internal technical department has carried out the respective work of re-fabrication of damaged feeders/nozzles. Therefore, in our considered view we do not notice anything wrong in purchasing of the precious metals and carrying on repair work of the machineries internally by the assessee. Accordingly ground No. 2 raised by the assessee is partly allowed. 20. With regard to ground No. 3, we notice that assessee has carried out substantial repair of the internal road inside the factory and claimed the same as repair expenditure during this assessment year. AO disallowed the above expenditure with the observation that assessee has not carried out repairs to the road at its factory but it is a case of complete construction of new road right from dismantling the existing road, excavation of entire road up to depth of 1.5 m and filling the excavated area by soil, placing a layer of plain cement concrete et cetera with top layer with RCC. This nature of work does not constitute petty repairs. Therefore, laying of new road and construction/finishing surrounding work results in benefit of enduring nature to the assessee. Accordingly, he treate ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
